You are made redundant and learn that you are entitled to a transition payment. Good news, but a question quickly arises: what will be left net after HMRC’s Dutch equivalent — the Belastingdienst — has taken its share? The answer depends on your total annual income and the tax bracket you fall into. In this article, you can read how the tax charge works, what you can expect, and what options exist to reduce the tax burden.
Transition payment as taxable income
The Dutch Tax Authority considers the transition payment to be income from previous employment. This means the amount is added to your other annual income and then taxed under the progressive income tax system in box 1. You therefore do not pay a separate ‘redundancy tax’, but rather the regular income tax rate that applies to your total income in the year of dismissal.
When your employer pays out compensation, they immediately deduct payroll tax using the so-called special remuneration table. This is an estimate based on your known annual salary. The definitive tax amount is only established when you file your income tax return. This may mean you receive money back afterwards, but it could also mean you owe an additional payment.
Tax rates in 2026
In 2026, three tax bands will apply to box 1 income. The transition payment counts towards determining which band you fall into:
- Up to and including €38,883: 35.75%
- From €38,883 up to and including €78,426: 37.56%
- Above €78,426 49.50%
Suppose that in the year of your dismissal you earn €40,000 in salary and receive a severance payment of €20,000. Your total income would then be €60,000. The portion of the payment that exceeds the first tax bracket threshold is taxed at the higher rate of 37.56%. Part of your payment may therefore fall into a higher tax bracket than your ordinary salary would normally reach. Bear in mind too that tax credits can phase out as your income rises, which further increases the effective tax burden.
How much do you keep after tax?
A rule of thumb that many people find useful: on a median income, you generally keep around 60 to 63 per cent of your transition payment after tax. Those on a higher income who consequently fall into the highest tax bracket will, in the best-case scenario, keep around 50 per cent. The higher your total annual income, the greater the proportion that goes to the tax authorities.
The maximum transitional payment in 2026 is €102,000 gross. If your annual salary is higher than this amount, one gross annual salary serves as the maximum. A substantial amount will therefore still be withheld from the figure stated in your settlement agreement before it appears as net in your account.
Would you like to know exactly how your transition payment is calculated? Read more on the Transition Payment Page.
Special rate and the income tax return
Your employer calculates the payroll tax at the time of payment using the special rate. Because your employer does not know at that point what your total annual income will ultimately be, they base their calculations on an estimate. This can sometimes result in an overpayment, as they may err on the side of caution and apply the maximum rate of 49.51%. Your income tax return corrects this, and you never pay more than the rate that corresponds to your actual total income.
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Plan a conversationAlways check when filing your tax return that the correct rate has been applied. Errors in the amount withheld occur more often than you might think and can work in your favour or against you.
Managing the tax on your payment wisely
There are a few ways to reduce the tax burden on your transition payment, or at least to optimise it. Here are the most practical options:
- Training or outplacement by the employer: If your employer pays for a training course or outplacement directly, and this is deducted from your transition payment, you’ll pay no income tax on that portion. This offers an immediate benefit.
- Annuity or bank savings: If you do not require the transition payment immediately, you can invest a portion of it in an annuity insurance policy or a bank savings account. Under certain conditions, that premium is tax-deductible, thus reducing your taxable income.
- When payment is due: Are you dismissed late in the year and do you expect a lower income next year? Discuss whether payment in the following calendar year is possible. A lower total income means a lower tax bracket.
- Income averaging If the payment causes you to fall into a higher tax bracket on a one-off basis, you can spread your income over three consecutive years through the Tax Authority. Please note: the tax difference must amount to at least €545, and you can only apply for this after receiving all the final assessments for those three years.
- Check the calculation. Always have someone verify that the transition payment in your settlement agreement has been calculated correctly. An error in the gross amount feeds directly through to the net amount you receive.
Regarding the annuity exemption scheme
Until 2014, employees were able to defer tax by using a special annuity vehicle (stamrecht-BV) or annuity account. That scheme no longer exists. In 2026, there will also be no way to defer tax on the transition payment in this manner. Bear that in mind if someone still recommends it to you, as it is no longer legally applicable.
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Frequently asked questions
Do I have to pay tax on my redundancy pay?
Yes. The Tax Authority treats the transition payment as income from previous employment. The amount is added to your other annual income and taxed in box 1 through the progressive income tax rates. Your employer withholds payroll tax directly upon payment and processes this via the special rate.
How much tax will I pay on my termination payment in 2026?
That depends on your total annual income, including the payment. In 2026, there will be three tax brackets: 35.75% up to €38,883, 37.56% between €38,883 and €78,426, and 49,50% above €78,426. The transition payment is taken into account when determining which bracket you fall into.
What is the maximum transition payment in 2026?
The maximum transition payment in 2026 is €102,000 gross. If your annual salary exceeds €102,000, one gross annual salary applies as the statutory maximum. This amount has been index-linked relative to 2025, when the maximum was still €98,000.
Can I save tax on my redundancy pay?
There are a few options. If your employer pays the costs of training or outplacement directly via the transition payment, you pay no income tax on that portion. Investing part of it in an annuity or bank savings account can also be tax-efficient. Always seek advice on what yields the greatest benefit in your particular situation.
What if my employer has withheld too much tax from my redundancy payment?
That can be corrected straightforwardly. Through your annual income tax return, the definitive tax is calculated on the basis of your actual total income. Tax that has been overpaid is refunded to you, but you may also receive an additional assessment if too little was withheld.
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